Banks moving slowly on foreclosures

Despite being exempt from California's foreclosure moratorium, many lenders in June chose not to schedule foreclosure auctions for delinquent borrowers, data from ForeclosureRadar show.

Notice of trustee sale filings -- in which lenders set an auction date for property on which a mortgage is in default -- were down 14.8% in June from the same month the previous year, ForeclosureRadar reported. ForeclosureRadar is a website that sells default data for California.

This drop in foreclosure notices is happening as the number of borrowers defaulting is rising. ForeclosureRadar says June's 45,691 default filings were up 10% over the same month the previous year. So, absent a moratorium of some sort, foreclosure notices should follow default notices proportionately.

That hasn't happened. ForeclosureRadar Chief Executive Sean O'Toole said, "A number of lenders appear to have self-imposed California’s latest foreclosure moratorium on themselves, despite having received an exemption from it.” The California moratorium, which mandates lenders postpone foreclosure auction notices by 90 days, exempts banks that have a loan modification program in place -- and most major banks were thus exempt because they have such programs.

Exempt lenders still held off on foreclosure filings. Bank of America, for instance, filed 48% fewer notices of trustee sale in June than in May. O'Toole called such declines "an outcome we are struggling to find an explanation for." Its unclear whether lenders simply are overwhelmed by the volume of foreclosures or if there is an effort to slow foreclosures to ease the flood of repossessed properties hitting the market.

Foreclosure is a three-step process, beginning with a notice of default when a borrower misses multiple payments, then proceeding to a notice of trustee sale, in which an auction date is set. If no deal is worked out between the lender and homeowner, the property is then auctioned, and the home is either bought back by the lender or sold to a third party.

Other key findings:

• A total of 22,291 foreclosures were taken to sale at auction, representing loan value of $9.57 billion dollars, a 24.7% increase from the prior month, though 8.2% lower than the prior year. The opening bids set by lenders were an average 39.3% lower than the loan balance, with 46% of sales discounted by 50% or more. 

• Sales to third-party bidders at auction in June increased by 18.3% from May to 2,687 foreclosures. As a percentage of sales, the majority of foreclosures still continue to be taken back by the lender; 87.9%, or 19,604 sales, with a total loan value of $8.44 billion, were taken back by the lender in June.

-- Peter Y. Hong

Comments

[socalinvestor]

Here's some good advice....don't buy a house until the state quits the moratorium business.

[Move 2 CA]

Well, Socalinvestor, I think I'll take your advice. What surprises me now is how few houses are actually on the market in some areas (and I think that some of these sellers are just people in total denial). Its as if everything is either in foreclosure or off the market until forced into foreclosure. In one of my target neighborhoods, where there were dozens of houses on the market a few months ago, there is now only ONE solitary house for sale in the entire neighborhood, and it is priced just as high as it was a year ago. Common sense might suggest that if it was overpriced last year, it is even more so now. With only that one house in the neighborhood for sale, however, I have no doubt some trigger-happy buyer will take it "because this must be the bottom." The economic drag of the wave of foreclosures was bad enough without aggregating them into a pending tsunami (complete with shallowing of supply before the wave crash). The unintended effects of these manipulations just seem to get more insane by the month. I guess it just goes to prove that a bad policy is sometimes worse than no policy at all.

[James E Gallagher]

I personally think that the banks are in negotiations with the the Obama admin, hedge funds, private investors and other investing entities. They are coming up with a variety of non traditional solutions to the bad assets.

Wells Fargo just sold $600 million in sub prime loans today. I think these kinds of deals are going to come out in the next few weeks.

[mr.bilko]

The California Foreclosure Act (ABX2 7 and SBX2 7) signed in February, effective June 15th, provides another 90 day moratorium on foreclosures. So don't expect much foreclosure activity from 6/15/2009 to 9/15/2009 either.

Here's it is: http://www.corp.ca.gov/FSD/CFP/default.asp

[LA Renter]

On the one hand, the big banks have free money available to them - As long as they can borrow at 0%, they are certainly under no pressure to foreclose on homes - they can also wait as long as they want without selling their inventory of foreclosed homes and take losses on their books. On the other hand, most people who want to sell now are upside down on their loan and simply cannot sell - This is why the inventory keeps going down every day. There simply is no new supply coming to the market.

This is a highly manipulated market. It is impossible to tell if we will have another bubble or if home prices will crash. I have a feeling there is a lot of government manipulation/experimentation going on and no one really knows where this will all end up.

[ray]

It's like another bubble, like socialinvestor I'm waiting for the other shoe to drop.
.
No homes on the market in the 400k - 800k range but all these delinquencies with no trustees sales. So prices are supported by no supply. But state furloghs, layoffs, higher taxes like cap & trade, stimulus bill in Feb with only 70B spent on infrastructre so far, huge increase in health taxes with penalties on small business = higher unemployment.

[TrojanDLA]

Unfortunately, any and all "solutions" ultimately will be paid for by the taxpayers in order for the banks to have a soft landing - the economy has already hit the skids with record unemployment and contraction.

The Fed is doing everything they can to couch their solutions in terms of "helping the hardworking Americans" but in actuality, the only people these solutions help are banks. Instead of spending $2 trillion, what if every head of household making less than $500,000 received $100,000?

[Steve]

It's what is on the financial books that counts. If your business reads toxic assets and climbing then your going under (you have no assets to sell). But if your books read mortgage current, then your reporting income with the borrowers imaginary payments.
Also, signs are disappearing because realtors aren't making the sales. Keep in mind, some realtors went out and bought during the years when they were making bank on comissions. Now they haven't made a sell all year. What do you think their next step is?

[sfvrealestate]

I think the real reason that banks have held up on foreclosing and listing foreclosures is simple. They have a vested interest in keeping prices high. The less properties that are on the market, the higher the competition for those properties, and the higher the prices.

[Morgan]

I have been wanting to buy a home lately but I am glad that I've decided to wait. My target area has "some" homes for sale but the prices are still somewhat high and tend to be slow moving when it comes to being reduced. Some of the prices aren't realistic IMO - I've seen some homes for sale almost if not a year or more. But like Move 2 CA said some trigger happy critter will pay it but I am going to wait.

[CAM]

I think the banks are all technically insolvent, but don't want to admit that. If they did admit it, the bankers will no longer draw their enormous salaries. They need to postpone the crash as long as possible, and Obama is giving them the tools to postpone.

The winners are those souls who stopped paying their mortgages and are living for free + the bankers who will draw salary and bonus for several years longer than they rightly should.

The losers are the taxpayers and those of us waiting for house prices to reach a true value... which is far less than those few houses actually selling today.

The government neither wins nor loses... they have no personal stake in the game. They will maintain voter goodwill for a while longer, that's all.

[Doug in Toronto]

A question: could a bank put someone into default or foreclosure if the person gets paid with Arnold's Funny Money (IOU's) and not with real US currency? The banks won't take them, the state government insists that you have to accept it as 'payment' and you can't cash it for real money until the fall, if you're lucky and there's finally a budget (don't hold your breath). This leaves the mortgage holder stuck in a real jam, technically unable to pay the mortgage through no fault or his/her own; rather it's the state government's fault. Looking forward to see the first lawsuit filed when this happens (and it will...)

[Drew]

Judt (sfvrealestate) writes: "I think the real reason that banks have held up on foreclosing and listing foreclosures is simple. They have a vested interest in keeping prices high. The less properties that are on the market, the higher the competition for those properties, and the higher the prices."

I think another factor is that many, many foreclosures are in such "distressed" condition that they are unsellable in the current market.

Lots of these properties need tens of thousands of dollars of work to make them habitable, let alone desirable. And that's if they're not out-and-out teardowns.

Right now, it's cheaper to buy a well-kept property than one that needs major work, once you factor in the cost of that work. It's simply not profitable for flippers to buy these properties now, and those intending to buy and occupy don't for the most part want to do this kind of work.

The relatively few foreclosures that are in "move-in" condition or need only minor cosmetic work seem to go quickly when they are put on the market.

[LA Home Search]

The banks aren’t foreclosing because we already have 9-12+ worth of inventory in almost all markets.

The banks are hoping that foolish first time buyers and loose FHA loans will help create a "Mini Bubble" to close the gap between what is owed and what the home is worth.

MY RECOMMENDATION TO YOU IS WAIT UNTIL PROPERTY TAXES ARE DUE IN NOVEMBER TO SEE THE FLOOD OF "NODs" (Notice of Default).

The Alt-A crisis is coming and there is no way to stop it. 7-11 trillion in bad debt that the government bailout package just can't handle.

If you disagree, I would like to know.

If you would like to take advantage of the situation and make some money finding "Short Sales" for investors go to http://www.LArealEstateClub.com

[SoCalGirl]

I've been in the market to purchase a home for about 2 months now. I'm searching for a home in So. Cal in an area where foreclosure has been hit hardest. The banks are not even responding to short sales so the only properties we can realistically look at are REO properties. However, once these REO properties hit the market, there are multiple offers on the property. I was recently outbid on a property that I put in $30k above listing price. Needless to say, it has been a very frustrating process. I thought it's supposed to be a 'buyer's market'. What a joke! I'll just wait til the banks get their act together.

[jag]

Drew, I completely agree with what you're saying. I've seen many foreclosed/REO homes that need a lot of work. However, there a lot of people grabbing these homes thinking they are getting a bargain, but once they make the home habitable or desireable it is no longer a deal. In fact, six months after you can buy a similar home for less and that does not require repairs.

[A Scanner Darkly]

Much of the liquid money now active in the real estate market in Southern California is from dubious sources.

[LA-renter {with a small r}]

CAM hit the nail on the head:

There's no conspiracy, there's no real plan.

Bankers, and the like, are just trying to postpone the inevitable, which keeps them earning a paycheck --just like anyone else would do.

[Johnjoe213]

There are many factors I can’t go over all but here’s a few.
-banks wont foreclose because if they keep a small amount of houses on the market, the 1 home for sale value will stay high because everyone is fighting over the same house.
-if the banks don’t foreclose then (I assume) they wont have to show a loss in there books witch is good for there over all stock value.
-gov. wont foreclose because they want house prices to stay high so that they can make good property taxes from sales of higher priced homes.
-My opinion wait till end of year, yes you may miss out on the $8000 first time buyer tax credit, but you may also get a house for $25,000 less (or even much more) if you wait till end of year.
-last thing, Nov. prop. Taxes are due, the banks may let people slide on missing a payment or two or 6 or so, but the gov. definitely is gona want there prop. Taxes

I got more but I am at work and can’t go into all the details of my research.

[kelmag]

What I find very interesting, is like myself I come across so many people waiting to buy. Most with 20% down good credit and the sense not to overextend themselves as well as not overpay for property. So the government and the banks think it a good idea to keep pricing the QUALIFIED buyer out of the market and continue essentially the same practices that got us into this mess in the first place by supporting the real estate market which make no sense at all.
hard to know where this will end, good sense says it will be bad but then again good sense seems to not to be worth much these days.

[SmallFry]

I have similar experience to SoCalGirl. I've been looking for low priced (not low end) properties to purchase for investment/rentals. My criteria are that the properties are at minimum cash flow neutral, and desirable. In my experience, there appears to be different demand and price trends within home price ranges. I suspect the credt terms (conforming vs non-, amount of down payment) also influence that. For example, the $200K-$300K bank owned properties have been going like hot cakes in the last 2 months.
When I started looking in April, there was definitely a mood of being in the driver's seat as far as offer price goes. I was looking for a $200K or less property. I offered less than list on one in early June and got a bank response/acceptance right away. The property had been on the market for several months. The rent will support my purchase price.
Since then, interest rates have climbed steadily and something seemed to have lit the market on fire. Lots of investors are out bottom fishing. I have given up looking for anything in the $200K range. There is too much bidding that drives prices up to where I can't see how I can make the deal work cash flow-wise (which brings up the question of how any other investor can make them work).
Now I am looking at properties in the sub $300 range, and there are again lots of investors doing the same. Banks lowball their list prices to fuel a bidding war. Properties will go for tens of thousands above asking. Mlutiple offers in the teens are common for a new listing.
There are a lot of talk about another flood of foreclosures on the horizon that wil drive current prices down further. Maybe I am too close to the frenzy to see how much lower pricing can go, but at this price range, there seems to be a lot of investor interest (and the government) to back stop that (and if rent will support the purchase price, why should the purchase price correct further as there are investors on the sidelines to step in). In addition, since housing is fundamental to economical growth (or has been in the past), and the stock market has already taken off as if recovery is right around the corner, wouldn't another major home price depression mean that we are in for a double dip in the economy and stock market? Just putting the questions out there for your opionions.